Recently Signed North Carolina Budget Includes Important Tax Changes

Williams Mullen
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Nearly three months after the beginning of North Carolina’s fiscal year, on September 18 the state General Assembly finally adopted a budget for the next two years which was signed by Governor Pat McCrory on the same day.

The $21.7 billion budget contains several important changes to North Carolina’s tax code, including:

  • Reduction in the state’s personal income tax rate from 5.75% to 5.499%, effective January 1, 2017.
  • Increase in the standard deduction from $15,000 to $15,500 for married couples filing jointly, effective January 1, 2016.
  • Addition of a medical and dental expense itemized deduction to match the Federal deduction, retroactive to January 1, 2015.
  • Continuation of a corporate income tax rate reduction trigger that will reduce the rate to 3% when state tax collections exceed roughly $21 billion.
  • Phase-in of single sales factor corporate income tax apportionment beginning January 1, 2016, with full phase-in by January 1, 2018.
  • Limitation of the corporate income tax deduction for interest paid or accrued to a related member.
  • Modification of the franchise tax by increasing the maximum tax payable by holding companies to $150,000 and by converting the capital stock, surplus, and undivided profits tax base to a net worth tax base.
  • Broadening of the sales tax base to cover services like car repairs and appliance installations, effective March 1, 2016.
  • Continuation (following a one-year break in 2015) of the state’s Historic Rehabilitation Tax Credits program for four years.
  • No extension of the state’s Renewable Energy Investment Tax Credit.


The General Assembly is not set to adjourn until September 30th, and additional tax proposals are still being considered.  Williams Mullen will keep you updated on any additional changes.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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